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12 June 2019 Insurance

US cyber insurance premiums up 10% to over $2bn in 2018, finds Aon

Cyber insurance premiums in the US increased to $2.03 billion in 2018, a rise of around 10 percent from 2017, analysis by Aon has revealed.

Premiums from package business grew 6 percent year on year, while standalone cyber premiums grew more than twice that by 14 percent. An even bigger rise was seen in premiums for small commercial-focused cyber insurers, which grew 19 percent.

The increase in cyber premiums was identified in Aon’s ‘2018 US Cyber Insurance Profits and Performance’ report, which also suggested that overall cyber insurance was quite profitable for US insurers in 2018 . It pointed to loss ratios remaining low in 2018, even though they showed “slight deterioration” from 2017.

The direct incurred industry loss ratio was 35.4 percent across all policies, with the standalone loss ratio improving by 1.0 basis points to 34.4 percent in 2018. The deterioration was on the package business side, where the industry loss ratio rose from 28.8 percent to 36.8 percent in 2018.

“Loss ratios across both the package and total segments deteriorated modestly from 2017 but remained lower than 2015-2016 levels… in 2015 and 2016, the National Association of Insurance Commissioners (NAIC) also included adjusting and other expenses in loss ratios, whereas they did not in 2017 and 2018. Adjusting and other costs averaged 1.7 loss ratio points in 2015 and 2016 – a minor component of the loss ratio but one worth noting,” the report added.

Aon said that 2018 loss ratio increase was “primarily due to an increase in claim frequency”. The average 2018 claim frequency across all companies was 4.2 claims per 1,000 policies, up from 3.5 in 2017. This affected package business to a greater degree than standalone.

Aon said the jump in frequency “more than offset a reduction in the claim severity” as the average claim size fell from $56,688 in 2017 to $50,401 in 2018.

“This shift toward higher frequency and lower severity reflects many of the claims stories of 2018, including increased activity in ransomware, cryptojacking and formjacking claims. Lastly, the premium per policy was slightly down year-over-year, as would be expected in the current soft market conditions.”

Jon Laux, head of Cyber Analytics for Aon’s Reinsurance Solutions business, said: “The main cyber story of the 2018 financial year is arguably that there was a lack of a story. US insurers, while still achieving good average growth during the 12 months under review, were shown to be growing at a slower pace than the preceding periods, where in both 2016 and 2017 growth rates were above 30 percent. One relative bright spot in 2018 was the small commercial cyber space, where growth is now well underway. SME risks have been highly desirable to insurers given that cyber claims frequency and severity are both lower for smaller companies.”

Aon’s US Cyber Market Update report also found that the US cyber market became more concentrated in 2018. The top five cyber insurers accounted for 53 percent of direct written premiums, an increase from 51 percent last year, and the top 10 accounted for 70 percent, versus 69 percent in 2017. This was a notable change as in 2017 smaller participants grew more rapidly than the market overall.

Analysis in the report was based on data from NAIC statutory filings, with a total of 184 US insurers reporting direct cyber written premiums in 2018, up from 170 in 2017.

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